Trade117 Week Ending 01February

VFTSE 01Feb2019

Noooooooo!!!! Don’t Take Our Volatility

The vol Grinch has been at it again. From 16 to 13 that is a big ouch! FTSE rose 3.098%, to be pedantic. So what’s the takeaway this week? Brexit, chaos in Parliament as another historic vote becomes ‘simply historic’. The £ has risen too, and so have bonds, and gold and commodities. FOMC make a few ‘dovish‘ noises and the market piles in. Non farms* were quietly deceptive too-like any data when you scratch beneath the surface. Smoke and mirrors with a pinch of salt. Are we bothered? Frankly so long as the market moves, we can trade, manage our risk and make money. What’s not to like?

So is volatility low? Personally 2018 was a cracking year for trading- the chart is from Mar2018 onwards:

 

A casual glance (best way) shows we are dipping towards the highs of last year, absent Nov and Dec. Note: any dip below the lower Bollinger band tends to correct quickly. I was once told by a successful hedge fund options trader that all he used was simply the above, but VFTSE was not around then, he used VIX, which is the tail that wags the dog, its owner and his house!

https://www.forexfactory.com/calendar.php

 Education, Trading, Free Materials, and Paying big $$$$ for Courses

Recently there have been exchanges about the above- https://www.trade2win.com

I feel it is important to get feedback from others though doubtless much of it will be unhelpful. However  I have often been directed to links that I found helpful -especially ones that disagree with me. I suggest that anyone paying for trading education is looking for a shortcut that does not exist. You may find some excellent educators, and a great many charlatans, but nothing is new in trading, the old stuff still holds true. The local library may even have some useful stuff. Failing that, the cheap options- charity shops, online and carboots are great for the odd 50p tome. There are some free PDFs to be found too. I can certainly email Cottle’s Options freebies: if anyone cares to give their details. Email  us at:  surreyhantstraders@gmail.com

Trade 116 and….How We Doin’?

Trade 115– it was a x2 strangle 7000 and 6600 with a long straddle 6800. Current levels gives a credit of about 92– but we took the trade for a debit of 84.5. No point trying to close this out yet.

Let’s try something daring and completely counterintuitive- a reverse ratio calendar.

Here’s the logic of the trade: We get a lot of bang for our buck as we have 4x delta and gamma and vega for our money. We are buying 4 of the Feb 6800 puts, selling 1 of the March 6800 puts.(78-18×4) Credit 6. Think that over for a moment. Overall Greeks Delta: 0.18×4 -0.31= 41. Gamma 14×4-9=47. Vega:  3.4238 x4- 8.3354 = 5.3638. We are ‘positive’ in those metrics but of course time decay, Theta=  1.8605×4- 1.6168= 5.8252. Theta is the enemy as would be no movement or a big rise in FTSE. It might be prudent to look at the call side too here but that is for another day. We need to give this a few days to work or fail.

Caveat

I am not comfortable about this trade as the logic for me, would normally be a volatility skew- ie the front month having very low vol relative to the far month. I don’t believe this is sufficient here. We would risk about 20 if possible.  Thus we are not yet fully engaged in trading March options. Somehow that seems a bit too ‘springlike’ when we are midwinter.

 

 

 

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About the Author: First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

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